JNJ Restructures
This afternoon Johnson and Johnson
(NYSE:JNJ) announced they were initiating a corporate restructuring that will involve
the elimination of 7,000 to 8,000 positions. While the company did not provide specifics
as to where these cuts would come from it’s difficult to imagine that there diabetes
unit would be spared the corporate knife. As Diabetic Investor reported after all
the major blood glucose monitoring companies were reporting earnings, JNJ sees
clearly where this market is headed and is taking the necessary steps to “right
size” the business.
This is just the latest in a series of
moves by the company to deal with the increasing pricing pressure and slowing
or shrinking market growth facing BGM. Prior to this announcement the diabetes care
unit had already virtually eliminated their R&D department, preferring to
out-source future product developments to companies like Universal Biosensor
(ASX: UBI.AX). In another cost saving move the company has abandoned the age
old practice of giving away monitors for free. They have even taken this
concept one step further as they don’t even offer rebates when a patient buys an
OneTouch monitor. The company also made cuts to marketing spend and plans further
cuts for the upcoming year.
Given their strong leadership position here
in the US and their clear focus on penetrating the insulin using market, today’s
cuts could well be a prelude to something even bigger. Looking at JNJ’s history
the company is not only known for acquiring new business units but shedding
them as well. With the BGM market not likely to change and more than likely will
see conditions deteriorate further, the company could be planning on spinning off
the LifeScan/Animas unit in separate IPO as a means to generate additional
capital.
Some may see this as wild speculation
however when it comes to the diabetes market one thing Diabetic Investor has
learned is that anything is possible no matter how wild it may seem at the
time. JNJ sees market conditions improving and the diabetes care unit even in
these tough market conditions is still very profitable and would likely command
a nice valuation. The company could even combine the diabetes care unit with
another business unit to further strengthen the appeal of a spin-off.
Like we said earlier stranger things have
happened.
